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How Globalization, Borderless Business and Entrepreneurship are reshaping China and the world (book excerpts of "China and the new world order)

by George Zhibin Gu, 248 pages

Part II The Yuan, Trade, and Investment

SUMMARY

Within a very short time, from nowhere seemingly, China has leaped forward, becoming a top manufacturing center and a top trading nation. In 2005 alone, China manufactured 80 million TV sets, 300 million mobile handsets, and 70 million air-conditioning units. These things were unimaginable in the Mao era. What was behind all this?

A basic fact is this: China’s quick development is tied to the outside world. The international involvement has many dimensions. First, the outside world had invested more than $640 billion in the Chinese market by early 2006. Second, overseas investors created over a half-million companies in this frontier market. Third, through their direct involvement, China’s economy is now directly linked to the global markets. These overseas businesses are responsible for the majority of China’s exports. In 2005 alone, nearly 60% of exports from China came through foreign-funded enterprises inside the nation.

This expanding manufacturing power is altering the global production map, and the changing reality also causes trade frictions of all sorts. Different nations have different interests. Reaching common ground is burdensome, to say the least. But there is no alternative and no shortcut. The economic interdependence demands rational thinking and actions.

Among the trade issues, the yuan’s exchange rate stands out. Some people feel that a rising yuan offers an immediate solution to the trade imbalance as well as advantages to the world. But will a rising yuan resolve the deeper issues? Are there any other options?

But the key is a fast changing world production and trade. That is, China and India are fast becoming low cost manufacturing and serice centers, while the developed West is fast becoming hightech and service oriented industries and economies.

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Chapter 6. China's Competitiveness vs. a Rising Yuan

China's surprise revaluation of the yuan on July 21, 2005, has raised many questions and issues. As a result, both inside and outside of China, there has been a great deal of commentary on how different sectors of China's economy stand to gain, or lose, from the policy change.

But the most important question is how the stronger yuan will affect China's competitiveness over the long term. A serious analysis shows that the revaluation could boost China's general competitiveness. And the entire world may benefit from a more competitive Chinese economy.

China's most basic economic challenge for the next generation will be to move from a low-value-added, investment-driven economy to a high-value-added, efficiency-driven one. The stronger yuan and the outside world will both play a significant role in causing this shift.

Business Chains: China's Hidden Strength

China's vast underpaid labor force is widely regarded as the foundation of the nation’s competitiveness. But cheap labor is not the key ingredient in the recipe. True, the average manufacturing job in China pays only $115 per month. But many other developing nations, such as India and Indonesia, have a large supply of inexpensive labor—yet China has pulled ahead of them, and other developing nations, as a top business and investment center. Why?

What has made the biggest difference is that China has built a set of complete business chains, especially in the manufacturing sector. The term business chain encompasses all the phases a product goes through before it reaches the customer, from raw material to parts manufacturing, assembly, marketing, the provision of technology and capital, and so on. To a far greater extent than competing countries, China has successfully achieved critical mass for its business chains: Increasingly, all the required elements are present within the country.

Very significantly, China's business chains increasingly connect final products directly with global markets and buyers: In 2005 alone, Dell purchased about $16 billion worth of products made in China. General Electric (GE) reached over $5 billion in outsourcing plus over $5 billion additional sales in 2005, and Philips did over $10 billion of China business in 2005.

A dominating reason for the localization of business chains inside China is the domestic consumption explosion. For example, prior to 1990, hardly any homes had air-conditioning. Today air-conditioning is very popular; China produced 80 million units in 2005 alone. This rising consumption has become a magnet for international capitalists. Without it, attracting foreign investment would be very difficult.

Obviously, global multinationals want immediate transactions and quick profits. Naturally, they invest mostly in those markets where consumption rises quickly. All business leaders today are under enormous pressures to produce quick results. Their eyes are tightly fixed especially on markets that offer immediate benefits. Therefore, rising consumption has made China a top destination for global capital.

This Chinese consumption growth has had no equal in the world. In 2005 alone, China manufactured around 300 million mobile phones, some 100 million of which were sold to Chinese customers, helping to make China the world's biggest mobile phone market with over 400 million subscribers as of early 2006.

Furthermore, with such an exploding market, international telecom players have little choice but to compete in China if they intend to win in the world marketplace. Nokia's global leadership in 2004 was helped in no small measure by its $6.9 billion in business from China. This foreign rush has further expanded the business chains.

The great advantage of complete business chains is that all manufacturers, Chinese or international, can make products in one place—China. In fact, regions like Guangdong and Shanghai have highly concentrated business chains that provide the best services for all sorts of businesses. This high degree of efficiency exists only in very few markets around the globe. It has been decisive in helping to make China a new business center.

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Reviews

Professor William Ratliff, Hoover Fellow at Stanford University "Unique Guide. No one I know of has come so close to capturing (new China's) spirit and meaning ... as Gu." .

Professor Ping Chen, Peking University and University of Texas at Austin "Not many people have time and energy to investigate basic issues confronting China and world. Dr. Gu is one exception." -

Contemporary History Association "Highly insightful study on Chinese multinationals on the global stage, as well as implications to global development." --This text refers to the Hardcover edition.

Gurus Online "Rigorous examination on current China and global affairs by an INSIDER."

Book Description China is the world's number-one growth story now. But how is it that China has achieved such quick growth in this era? How is it that made-in-China products can flood the globe? Is a trade war going to happen? Or is a new world order in the making? This second volume of a trilogy-by Chinese journalist/consultant George Zhibin Gu-aims to answer these questions and more.

Today, more than a half-million overseas companies conduct business inside China. Learn about all the opportunities this exploding market presents, including banking, insurance, and stock market, as well as the yuan and trade and cross-border business issues. Moreover, it contains extensive studies on China's political-economic reform as well as evolving international relations.

This volume addresses eight key topics:

Contents of "China and the New World Order"

This book consists of 26 chapters, which are organized into eight parts: I. China’s New Role in the World Development

VI. The Taiwan Issue : Current Affairs and Trends (federation as an alternate way for unity)

ch 21. Federation: the best choice for Taiwan and mainland China. ch 22. Taiwanese businesses in the mainland. a vibrant Taiwanese force. Hightech. Other sectors. What is the next? Will Spring follow winter?

George Zhibin Gu, a journalist/consultant based in Guangdong, China. A native of Xian, he was educated at Nanjing University, Vanderbilt University, and the University of Michigan. He holds two MS and a PhD from the University of Michigan.

For the past two decades, he has been an investment banker and business consultant. His work focuses on helping international businesses to invest in China and helping Chinese companies to expand overseas. He has worked for Prudential Securities, Lazard, and State Street Bank, among others. He generally covers mergers and acquisitions, venture capital, business expansion, and restructuring.

Also, he is a journalist on China and its relations with the world. His articles or columns have appeared in Asia Times, Beijing Review, The Seoul Times, Financial Sense, Gurus Online, Money Week, Online Opinion, Asia Venture Capital Journal, and Sinomania, among others. He is also a member of the World Association for International Studies hosted by Stanford University.

He is the author of four books :

1.China and the New World Order : How Entrepreneurship, Globalization and Borderless Economy Reshape China and World, foreword by William Ratliff (Fultus, 2006) ;